In this article the significant changes that are going to be coming up in 2022 to the Texas lien laws will be discussed. It is a very relevant topic right now to stay apprised of.
The Texas legislature has been busy at work making these changes and they are primarily focused on streamlining subcontractors’, suppliers’, and lower-tiered subcontractors’ abilities to perfect their liens on private non-residential construction projects in Texas.
So the changes that will be discussed will be on the private side, not the public side. Non-residential construction projects in Texas will also be discussed.
These are the main changes but by no means is this an exhaustive list. So do keep in mind that these are just some of the highlights that have occurred to Chapter 53 of the Texas property code.
Key Statutory Changes – When Do the Changes Go into Effect?
Your biggest question might be, when do these changes go into effect? This is really important because these changes that are going to be discussed only apply to projects with original contracts entered into on or after January 1, 2022.
a. Original contracts are contracts between the owner and general contractor
These original contracts are the contracts between the owner and the general contractor.
b. Limbo period for projects started in 2021
There is going to be a limbo period where you find yourself entering into contract agreements and performing work in early 2022.
But if you provide your services to someone somewhere in the middle of the project, perhaps the project actually started back in 2021, you are going to need to be cognizant of when that original contract was entered into between the owner and the general contractor kicking off the project.
c. Consider utilizing leverage before you enter into a new 2022 contract
It is recommended that going into 2022, you should utilize your leverage as you enter into those purchase orders and those contracts and ask the general contractor or the owner. You need to know when the project started and when you entered into the contractual agreement with the general contractor to start the project.
Form Statutory Pre-Lien Notices
This is a big change from prior construction lien laws.
a. No standard form for unpaid subcontractors and suppliers
Previously, there was no standard form for pre-lien notices for unpaid subcontractors and suppliers.
b. Required magic fund trapping language
You should know much the claim amount was, who you were under a contract with, and the required magic fun trapping language that was inserted into all pre-lien notices.
If the claim remains unpaid, the owner may be personally liable and the owner’s property may be subject to a lien unless the owner withholds payment from the contractor for payment of the claim, or the claims otherwise paid or settled. So this magic language essentially trapped funds in the hands of the owner.
c. Two statutory forms
Going forward, now, Texas legislature has put forward two statutory forms that are for all subcontractors who send out pre-lien notices. You will need to comply with this substantially. There are two different forms – one for unpaid labor and materials, and another for unpaid contractual retainage.
Oftentimes you may have both unpaid labor and materials as well as unpaid contractual retainage. So these forms can easily be combined.
Form Notice: Unpaid Labor or Materials
Now we will take a look at the examples of these. Below is the form that is in the statute now, going into 2022 for unpaid labor or materials.
You will see at the start that there is a warning at the top. It is essentially the new ‘magic language’ that covers the funds trapping language that was used previously. It is required to be in your pre-lien notice. In the remainder of the form you have some line items that need to be included in your pre-lien notice for unpaid labor or materials.
Form Notice: Unpaid Contractual Retainage
Now we look at the example of the form pre-lien notice for unpaid retainage. This is the unpaid contractual retainage Texas notice. The only difference here is the fact that there is a line item for the total retainage unpaid amount as well as the claim amount.
As you can see above, these two forms are substantially similar so they can easily be combined.
Unpaid Material or Labor and Retainage – Combine the notices
Here is an example of a combined notice where you have a Notice of Claim for unpaid materials, labor and contractual retainage.
Very simplistically, you can add in a line item for the total retainage unpaid and then you have the unpaid retainage in your claim amount as well as your unpaid materials and labor amount for a total claim amount. You never want to send out one of these notices and leave something on the table.
And so, to the extent that you have unpaid materials, labor, and contractual retainage that is outstanding, you want to be sure to notify the owner and general contractor of all outstanding amounts.
Now that the changes in the forms that are to be used going forward have been discussed, we can discuss the changes that are occurring to the deadlines for sending out these forms as well as filing your lien affidavits in the real property records.
Streamlined Pre-Lien Notice Deadlines for Unpaid Subcontractors of All Tiers
Taking a step back, the lien notice for unpaid materials or labor, and unpaid retainage, and the lien notice for unpaid materials, labor, and contractual retainage were discussed. There are different deadlines that apply to each and so first we will discuss the changes to the deadlines that apply to unpaid materials and/or labor.
a. Previous deadline distinction
Previously, Texas law used to make a distinction between first-tier subcontractors, second-tier subcontractors, and lower contractors. They would require first-tier subcontractors to send out their pre-lien notices by the 15th day of the third month after performing their work that remained unpaid. Whereas second-tier subcontractors had much shorter deadlines. They had to comply with the 15th day of the second month after providing labor or materials for which they had not been paid.
That was a really cumbersome deadline to meet, and the Texas legislature recognized that.
b. New deadline distinction
Now going forward in 2022, for original contracts that are entered into/on/after January 1 of 2022, the construction lien laws no longer make a distinction between first-tier subcontractors and the second-tier subcontractors.
They all have the exact same pre-lien notice deadlines. They are all going to be required to send their pre-lien notice by the 15th day of the third month after providing labor or materials for which they have not been paid. This is a really big help in streamlining the process and the ability of lower-tired subcontractors to protect their rights.
Lien notice deadlines for unpaid subcontractors of all tiers
Now we will take a look at the updated chart that is below.
Let us assume you performed work in August of 2022, and the project started in February of 2022. First-tier, second-tier, and all tiered subcontractors would be looking at making sure to send out their pre-lien notice by November 15 of 2022.
So long as you completed your work if you finished your work in August of 2022 as well, then you would be looking at filing your lien affidavit by December 15 of 2022.
Lien Deadlines for Contractual Retainage
Now we will discuss the deadlines for contractual retainage.
a. Notice must be sent to the owner and to the general contractor by a new date
On the pre-lien notice side of things, you will want to send out your pre-lien Notice for unpaid contractual retainage to the owner and general contractor. Most often, this is within 30 days after completion of your work. That is going to be the most common example of your deadline to send out your notice to the owner and general contractor of unpaid contractual retainage.
Sometimes in the event that you are terminated or abandon the project, you are still looking at 30 days after that to send out your pre-lien notice. In the unlikely event that you get wind of the general contractor being terminated or abandoned, you are going to need to send out your pre-lien Notice of Unpaid Contractual Retainage within 30 days of that date as well.
But most often, you will want to send Notice of Unpaid Contractual Retainage Texas 30 days after completing your work.
b. If you are a subcontractor, the lien affidavit must be filed by a new date
Then, there is a change to the date on which you want to file your lien affidavit for purposes of unpaid contractual retainage. That date per the new statute is 30 days after completion, termination, or abandonment of the original contract.
So you will need to keep apprised of the status of the project in order to be familiar with when this deadline falls to get your lien recorded. Or, you will need to file your lien affidavit by the 15th day of the third month after the month in which the original contract was completed, terminated, or abandoned.
The ‘OR’ is a little bit wonky in the sense that of course the 15th day of the third month after the original contract was completed, terminated or abandoned is always going to be the later of the two deadlines. So if it is an or, you will just comply with that, and that is technically what the law is.
Lien Affidavit Recordings
It is always recommended to go ahead and get your construction lien on file as well as to send your pre-lien notices within 30 days of project completion. Of course, if your deadlines fall prior to that, comply with those deadlines.
However, you always want to get your lien recorded within 30 days of project completion because of the concept of fund trapping that was discussed above.
a. If your work is performed at the end of the project
Let us say that your work is performed at the end of the project. Say that you are a flooring subcontractor, and you perform your work at the very end of the project. The project reaches substantial completion after you finish, the owner moves in, and final completion occurs shortly thereafter.
b. Thinking you have until 15th day of 3rd month to send notice and 15th day of 4th month to record lien
You may think that even if your invoice remains unpaid, you have until the 15th day of the third month to send out your notice, and the 15th day of the fourth month to record your lien affidavit. Well, that is not accurate if you want to put yourself in the best position to ensure that the owner has trapped funds to satisfy your claim.
c. Owner is authorized to release ‘reserved funds’
The owner is technically authorized to release the reserved funds and release the 10% statutory retainage that has been withheld from the general contractor. They are entitled to release this money 30 days after final completion.
If you are waiting until the 15th day of the third month to send out your notice for your unpaid flooring work, for materials that you provided, then you might be too late to trap those funds in the hands of the owner. Because they may have already released that money to the general contractor.
That is why these deadlines are important to comply with, but also to understand the timeline of the project is very important.
Calculating Statutory Deadlines
Now we will discuss calculating statutory deadlines.
a. Previous deadline calculation
Previously, even if the 15th day of the third month fell on a Saturday, Sunday or legal holiday, you were required to comply with the prior business day. For example, if the 15th day fell on a Saturday, you were needed to send your pre-lien notice by the day before (Friday), in order to comply with the statute.
This is no longer the case anymore.
b. New deadline calculation
Now if the deadline falls on a Saturday, Sunday or legal holiday, the deadline is extended to the following day that is not a Saturday, Sunday or legal holiday.
c. What deadlines does this apply to?
So what deadlines does this apply to?
ii. Pre-lien notices
This applies to pre-lien notices that had to be submitted on the 15th day of the third month. Those will be extended to the next day that is not a Saturday, Sunday or legal holiday.
ii. Post-lien notices
Post-lien notices are the notices to the owner and general contractor that you have recorded your lien affidavit and you are sending them notice of that recorded lien affidavit within 5 days of recording. If that fifth day happens to fall on a Sunday, you are given until the following Monday, assuming it is not a legal holiday to send out your post-lien notice.
This also applies to lien recordings. Now the lien deadline has been extended to the following day that is not Saturday, Sunday, or a legal holiday, to the extent that that deadline falls on a weekend or legal holiday.
Pro-Tip: Do not wait to file
But ultimately, it is recommended not to wait, and to act fast and early because there is no real reason to wait until the very last minute to do any of these things.
Because once you file your lien or send out your pre-lien notice, you can always retract your claim or release your lien once it has been satisfied. But as soon as you miss the deadline to file in the first place at all, you have missed the deadline. That is hard to fix.
Expanded mailing options for notices
There are now expanded mailing options for notices.
a. Previous mailing options
Previously, certified mail was pretty much the only acceptable form of mailing lien notices. UPS and FedEx services were not recognized forms of delivery.
a. New mailing options
So currently, the status of the law going into 2022 is that certified mail continues to be the preferred method of mailing.
That is primarily focused on the fact that if you send your pre-lien notices out via certified mail, you have complied with your obligations to ensure that your pre-lien notices were deemed delivered. You do not have to ensure receipt of the pre-lien notice by the owner and the general contractor so long as it is postmarked by USPS by the deadline.
c. So what is new with the mailing options?
You might ask what is new if certified mail continues to be the preferred method for mailing lien notices. Well, the lien laws expand the acceptable forms. So you can send out yearly notices via FedEx, UPS, or other private delivery services with tracking capabilities.
So long as they are delivered to the owner and general contractor, you will have complied with your obligations to send your pre-lien notices.
d. Why do the expanded mailing options matter if certified mail is still preferred?
You may be wondering that if certified mail is the preferred method, why the other options matter at all. They matters because of this concept spoken about before, called funds trapping. Funds trapping is only trapped in the hands of the owner upon receipt of a lien notice.
In that circumstance, receipt is very critical and as everyone knows, FedEx and UPS tend to have faster delivery times than the US Postal Service (USPS). USPS can take anywhere between seven to ten days to deliver your pre-lien notice to its destination.
Whereas if you send via FedEx, UPS, priority mail or overnight, you are going to get a much faster delivery. So long as that pre-lien notice is received in the owner’s hands sooner rather than later, you have more of an opportunity to trap those funds in the hands of the owner before they release the funds to the general contractor.
Pro-Tip: Send Notices via Certified Mail, Return Receipt Requested, and FedEx/UPS Priority Mail
Going forward we highly recommend continuing to send your pre-lien notices via certified mail as well as FedEx and UPS, just to get them there that much faster.
Shortened Limitations to File Suit for Lien Foreclosure
This is a very significant change.
a. Previous timeline to file suit
Previously, claimants who filed a construction lien had at least two years to file to foreclose on a perfected lien. Oftentimes, owners would evaluate a lien on their property and think that they do not plan to sell their property for the next 25 years so the lien really meant nothing to them.
And so subcontractors and all contractors were required to go ahead and file their lawsuit for lien foreclosure in order to recover funds.
New timeline to file suit
Now, lien claimants have one year from the last day the claimant is permitted to file its lien affidavit to institute its lawsuit in the county in which the project is located.
There is this extended period that can occur for up to two years if the claimant enters into a written agreement with the property owner, and that written agreement is recorded in the real property records in the county where the property is located.
Pro-Tip: Assume Property Owner is Not Going to Grant You Extensions
It is advised to always err on the side of the property owner, who is probably not going to enter into any sort of written agreement extending your statute of limitations and time period for filing a lawsuit against them.
So you really need to make sure to comply with the one-year deadline for instituting your foreclosure action in court. Contact an attorney about filing a foreclosure lawsuit as soon as possible.
Elimination of Statutory Notary Requirements for Lien Waivers
Last but certainly not least, we are going to talk about lien waivers.
Going forward in 2022, there were four different kinds of lien waivers that were often used and recognized by Texas law as valid lien waivers. These were both conditional and unconditional, as well as progress payment lien waivers and final invoice lien waivers.
a. Valid statutory lien waiver is no longer required to be notarized
It is no longer a requirement to have your lien waivers notarized and be a valid lien waiver under Texas law. A lot of times people say that it is a huge burden to have to submit their monthly invoice with a notarized lien waiver and always have to track down the local notary in their company or go to the bank in order to get lien waivers notarized.
That is no longer a statutory requirement for a valid waiver. This applies across the board to the four different kinds of lien waivers. But that is not necessarily to say that owners and contracts may continue to require that the lien waivers you submit with your invoices be notarized.
This is per the contract terms but it is certainly a negotiable item now that the statute no longer requires it.
b. Owners and contractors may continue to require notarization per contract terms
Notarization is no longer a statutory requirement for a valid waiver. This applies across the board to the four different kinds of lien waivers. But that is not necessarily to say that owners and contracts may continue to require that the lien waivers that you submit with your invoices be notarized.
c. County clerks may require notarization for recording purposes
That is also not to say that county clerks who might be recording lien releases or lien waivers will not continue to require that your lien release be notarized for purposes of recording.